Chong Hing Bank Confirms Takeover Approach

Mid-sized lender Chong Hing Bank Ltd., owned by the Liu family, Thursday confirmed it had been approached by an unnamed third party for a takeover, driving its shares up 23% in Hong Kong. The last such deal was five years ago, when China Merchants Bank Co. Ltd. bought the family-owned Wing Lung Bank for $2.47 billion.

Chong Hing ‘s shares were suspended on Wednesday after the Hong Kong Economic Journal reported that Yuexiu Group had raised US$1 billion in preparation for a takeover of the lender, which is 9.7% owned by Japan’s Mitsubishi UFJ Financial Group. Yuexiu Group is the trading arm of China’s Guangzhou city government.

Despite the competitiveness and low returns in Hong Kong’s banking sector, Chong Hing has a solid retail branch network in the city and a big corporate loan book for a bank its size, a major attraction for anyone hoping to establish a presence in Hong Kong, said Timothy Li, a banking analyst at broker Core-Pacific Yamichi.

The last acquisition of a family-owned Hong Kong bank was China Merchants Bank’s takeover in 2008 of Wing Lung Bank, which was owned by the Wu family. A majority stake in the bank was put on the block by the family after the death in 2005 of the bank’s founder, Yee-sun Wu. Other interested bidders at the time included Industrial & Commercial Bank Ltd. and Australia & New Zealand Banking Group Ltd.

So what else is left on the market?

Bank of East Asia Ltd., controlled by Chairman and Chief Executive David Li and his family, is never far from the takeover spotlight. It’s been speculated for years that Malaysian tycoon Quek Leng Chan has his sights set on the lender, and his Guoco Group Ltd. has already built up a roughly 15% stake. Still, analysts say Bank of East Asia’s other substantial shareholders could be used as a defense against any major move by Mr. Quek.

In December, Bank of East Asia sold new shares to Japan’s Sumitomo Mitsui Banking Corp., lifting its holding to 9.4% and making it the lender’s third-largest shareholder, FactSet data shows. Bank of East Asia’s largest shareholder is Spain’s CaixaBank SA, with a 16% stake. The Li family holds about 7.6% of the bank.

In a note, Bank of America Merrill Lynch said Chinese banks looking to increase their retail presence in Hong Kong, and regional banks trying to expand in the city are potential buyers. But falling returns on retail banking in the city have made mergers and acquisition more difficult.